1. Diligent Loan Solutions Presentation for: Presenter: Donna Schmidt

2. THE EVOLUTION OF LOSS MITIGATION Prior to the Housing Crisis – 2004 – 2007 the typical loan could be brought current through a standard repayment plan, or a hybrid of forbearance and repayment. The success rate was approximately 80-85%. Statistics taken from a servicer whose portfolio contains loans from two state housing finance agencies and one county housing finance agency.

3. Pre-Crisis Loss Mitigation

4. Pre-Crisis Success Rates

5. Crisis Factors – Reason for Default (RFD) Shift. – In 2007 - 47% of loans referred to foreclosure had RFDs of Excessive Obligations or Unknown (30%). Only 23% of loans had RFDs of Loss of Income or Unemployment. – In 2010 - 32% of loans referred to foreclosure had RFDs of Excessive Obligations or Unknown (17.73%). But 50.64% of loans had RFDs of Loss of Income or Unemployment. – The rise of gasoline and heating expenses that began in 2007-2008 further eroded disposable income. – Household income statistics have remained flat. – Deteriorated underwriting standards that allowed high DTIs – Loss of property equity

6. Crisis Loss Mitigation

7. Mortgage Revenue Bond Hurdles Beginning in 2010 – nearly 50% of all loss mitigation offered was some form of permanent modification of the original loan terms. Bond restrictions meant that interest rates could not be lowered. Typical loan saw only a $40 to $60 reduction in the monthly payment, which came from the term extension. Some unseasoned loans actually saw payment increases. FHA HAMP and RHS MRA, with the principal deferment saved the day. FHA ML 2012-22, 2013-32 – increased the likelihood that a HAMP could be offered and thereby increasing the actual relief needed by many borrowers with high front end DTIs.

8. Re-defaults after Modification An analysis of all major workouts (Loan Modification, Partial Claim and FHA HAMP), one year after posting or bringing the loan current, it was discovered that only 63% of the loans remained current. With Partial Claims performing the worst at only 49%.

9. The Key

10. What did we Learn? Those with the least surplus income knew where their money went and budgeted accordingly. Those in the $460-559 range had high success rates because the predominate RFD was previous unemployment and they were now back on track. Poor budgeting was the primary reason for re- defaults.

11. What do we do with this information? Housing Counseling Borrowers have been advised through multiple contact attempts of the availability of housing counseling assistance. Over the last 2 years, there has been a marked decrease in evidence that borrowers are actually working with a housing counselor for budget advice. Servicer Collection of Borrower Financial Data The GSE standard financial form – Uniform Borrower Assistance – is inadequate. Need more detail in order to truly evaluate a borrower’s budget and to determine how we can assist them in keeping their loan current.

13. Budget Awareness Bank Statements are reviewed line by line to designate a specific budget line item. Non-Judgmental explanation and discussion of where the income is being spent. Recommend that our clients include a copy of our Financial Review with the Denial letter or Loss Mitigation Approval offer (trial payment plan). Expect 10-15% lift

14. Loss Mitigation Issues Failure to Document the Loss Mitigation File Support the hardship. Ensure appropriate view of income (handling of overtime, commission, self employment, teacher or other seasonal income). Pre-foreclosure sales – still need to support hardship even for job transfer, etc, if borrowers do not meet streamlined criteria.

15. Loss Mitigation Issues Handling of Escrow Shortages Loan Modifications – analyze the loan as of the effective date of the option: All Disbursements will be made on time. No Escrow Deposits will be received. HAMP or Partial Claim – analyze the loan as of the effective date of the option: All Disbursements will be made on time. All Escrow Deposits will be received and posted to the account as if the loan were brought current. *NOTE: Adjustments need to be made if only a portion of the arrears can be included in the Partial Claim.

16. What to Expect in 2015 Increase in Defaults GSE HAMPs begin to see interest rate increases – more loans will re-default. Increase in Denial on FHA Loss Mitigation 24 Month Rule has kicked in Hoping for RFD Variance for Unemployment, Death or Illness of Borrower

17. 273,000 Residential Properties Regained Equity in Q3 CoreLogic has released new analysis showing nearly 273,000 U.S. homes returned to positive equity in the third quarter of 2014, bringing the total number of mortgaged residential properties with equity to approximately 44.6 million, or 90 percent of all mortgaged properties. Nationwide, borrower equity increased year over year by approximately $800 billion in the third quarter of 2014. The CoreLogic analysis indicates that approximately 5.1 million homes, or 10.3 percent of all residential properties with a mortgage, were still in negative equity as of Q3 2014 compared to 5.4 million homes, or 10.9 percent, for Q2 2014. This compares to a negative equity share of 13.3 percent, or 6.5 million homes, in Q3 2013, representing a year-over-year decrease in the number of underwater homes by almost 1.5 million (1,433,296), or three percent. KEEP READING...READING...

18. Thank you from 5020 East Beltline Ave, Suite 205J Grand Rapids, MI 49525 Phone: (616) 570-0199 E-mail: dschmidt@assistanceoptions.com Also offering WaterfallCalc.com – the only FHA Loss Mitigation Waterfall analysis and calculation web-based application!